What is cryptocurrency: Everything you need to know

It is the year 2021, chances are you have heard people discussing cryptocurrency or seen highlights about it across many platforms. The possibilities of hearing about it are wide, it is an extensively discussed concept that keeps gaining traction and popularity each passing day since its inception in 2009. According to Consumer News and Business Channel, 1 in 10 people currently invests in cryptocurrency. If you have been confused about the term, its technicalities, and how to join the cryptocurrency industry, we will be breaking down the concept and its nitty-gritty in today’s post. But before we delve into specifics, let’s give you a little background. 

Currencies are highly important in our day-to-day life. It serves as a means of exchange, a superb storehouse of wealth, and a unit of measurement. To put this in the most specific sense, currency is any type of money when in circulation or used as a means of exchange, examples are circulating banknotes and coins. 

The first form of exchange known to man was the barter system which involved trading goods and services for other types of goods and services. This system was efficient for a while until it could not cater to many exchanges. From barter systems to plastic money, currencies have gone through many evolutions to fit the needs of people. Today, we have a new evolution for money known as “cryptocurrency” or “crypto”.

The prefix “crypto” stands for “cryptography,” which is a technology that keeps information safe and hidden from attackers. Cryptography can also be defined as a mathematical and computational practice of encoding and decoding data. This is done to enable the data to be read-only by the intended recipient. Using cryptography allows for the secure storage and transmission of data between the sender and receiver. The data pre-encryption is called ‘plaintext or cleartext’ and the encrypted data is called ‘ciphertext’. Cryptocurrency leverages this technology.

Cryptocurrency is a unique type of digital or virtual currency designed to be a medium of exchange. It is an alternative and digital form of money that eliminates the need for third-party players such as a bank. To put things in perspective, cryptocurrency performs two impeccable functions. On the one hand, it is a digital currency, and on the other, it is a virtual accounting system. It exists in a peer-to-peer network called a blockchain. A blockchain monitor, organizes, and serves as a secure ledger of transactions e.g., buying, selling, and transferring. 

Brief History 

There’s a significant backstory behind cryptocurrency. It existed as a theoretical construct for a long time, with the advent of the internet the first digital alternative currencies debuted. Its history can be traced to the early 1980s, which coincided with the launch of a blinding algorithm by a renowned cryptographer, David Chaum. His invention was central to modern web-based encryption and was called eCash. By 1995, David implemented his technology through Digicash, a unique form of cryptographic electronic payment designed to allow users to leverage a powerful software to withdraw notes from a bank before using a specific encrypted key to send money to a recipient. This system allowed the digital currency to be untraceable by the issuing bank, the government, or any third party.

Nevertheless, the very first time anything close to the term cryptocurrency was coined was in late 1998. This year saw tech gurus like Wei Dai explore the idea of building a payment method that leveraged the power of cryptographic systems and had all the features and characteristics of decentralization. 

In 2008 during the global economic and funding crisis that affected everybody including the world’s powers. The effect of the crisis was so severe that many currencies lost their values. This spurred Satoshi Nakamoto, someone whose identity is still secret, to build the world’s first cryptocurrency, Bitcoin. This happened in 2009 and provided an alternative means of transactions that are not conventional to millions of people affected by the crisis. Since its launch, other people and companies have built numerous additional crypto assets — some of which position themselves as faster or more private assets. 

Cryptocurrency is A true product FOR the digital age, they operate without the involvement of banks, governments, or any middleman. Although, in most cases, you will need to use a digital currency exchange to buy and sell your digital assets. Censorable and low-speed means of transactions such as online banking, internet payment system, and credit cards are efficient but do not quite fit the needs of today’s digital society. 

Notable events in the Crypto space:

2008: Creation of the website Bitcoin.org and Satoshi Nakamoto’s breakthrough announcement in the cryptography mailing list.

2009: The first block of bitcoin was mined in 2009 and dubbed Block 0. This is also known as the “genesis block”. 

This followed with the launch of the very first bitcoin software which was eventually announced to the cryptography mailing list. And like we mentioned, the first block was mined in 2009, with full-scale mining commencing forthwith. 

2011: Satoshi Nakamoto disappears: While he appeared out of the blue in 2008, the man behind bitcoin disappeared three years later just after launching one of the most robust cryptocurrencies. On the 23rd of April, 2011, he sent a farewell message to other bitcoin developers. 

2013: Silk Road terminated: For starters, the Silk Road was an online black market that provided opportunities for buyers and sellers of illegal items to do business. Thanks to the robust growth of technology, increased use of cryptocurrency and e-commerce marketplaces, the need for data privacy became ever more important.  

2014: MT Gox Closes down: The Mt. Gox hack of 2014, resulted in the loss of over 850,000 bitcoins belonging to customers. This is perhaps the biggest hack in the cryptocurrency world. In terms of value, customers lost bitcoins worth over $450 million at the time.

2015: Creation of Ethereum: Ethereum is the community-run technology powering the cryptocurrency, ether (ETH), and thousands of decentralized applications.

2017: ICO Boom and BTC at 20k: An Initial Coin Offering (ICO) is a type of token sale in the crypto space. The term ICO is used to describe a form of asset distribution system that specifically entails selling digital currencies to raise funds to power certain blockchain projects. Since the start of ICOs, the industry has raised billions of dollars for a variety of crypto-related projects. And yes, 2017 was a period when bitcoin enjoyed an impressive rally with price settling at $20,000, the highest price at that time.

2020: BTC halving and rally: 

2021: Tesla buys bitcoin reserve 

The many hats of cryptocurrency

There are several explanations to why cryptocurrencies are so important in modern times, we’d explore these explanations by highlighting their importance:

Certainty: they provide certainty to people, rendering them a desirable investment opportunity both now and in the future.

Availability: The Internet is used by more than half of the world’s population. Unfortunately, many of those in these statistics do not have connections to conventional exchange networks. Thankfully, the crypto space is creating opportunities for citizens such as these.

Ease of use: Cryptocurrencies give you the power to dictate how smooth your transactions will go.

Privacy: It minimizes the level of intrusion people with financial accounts face by giving the owner of the money full control.

Information: The crypto space is vibrant and has a lot of members from all over the world thirsty for knowledge. With the constant change and updates, there are always people dedicating time to learning and willing to lend a helping hand.

Mooning: This is a verb that describes the rising price of a cryptocurrency. More specifically, when a cryptocurrency is mooning, it means its price is skyrocketing – literally heading to the moon. This term has put a lot of smiles on people’s faces.

Effects on the global economy: Cryptocurrency is the newest and most exciting application to the electronic and digital payment market with many brands, companies, and people keying into it. It fosters seamless international trades and payments.

Transaction Costs: Making payments with crypto needs very little to no transaction cost.

Accessibility: A crypto account can be used 24/7 with no restrictions, you can also make as many withdrawals or purchases as possible.

Job opportunities: The space has created so many businesses and job opportunities from 2009 to date. From traders to analysts to NFT Artists, there’s a position for everyone interested in the field.

How do cryptocurrencies work?

As earlier explained, crypto is a unique type of digital currency that takes the form of tokens or “coins’ and exists on a distributed and decentralized ledger. Blockchains are advanced and sophisticated computer networks specially powered by mathematics and coding. Unlike traditional fiat currencies that are printed and issued by central banks and governments, cryptocurrency is decentralized. This means it isn’t controlled by a single entity. 

For starters, cryptocurrencies are categorized into coins and tokens. While coins operate on a unique blockchain and hold intrinsic value, which allows them to be used as a means of payment, tokens are built on an existing blockchain. 

How many types of cryptocurrencies exist?

Owing to the nature of bitcoin technology which is open source, software developers can use the original source code and create something new with it. There are estimated to be more than 4,500 different cryptocurrencies in circulation and the number keeps increasing. 

Here are some of the different types of popular cryptocurrencies available:

Bitcoins 

Bitcoin is a popular digital currency. It is formed by computational solutions to complicated math problems. It works separately from a central bank or is simply decentralized. It is the most common form of cryptocurrency that one knows of nowadays. It comes under the category of Tokens. Tokens are usually given out or taken via an initial coin offering (ICO) which is very similar to a stock offering. This isn’t necessarily categorized as money but rather encryption such as a bill payment.

Bitcoin cash

This is another form of bitcoin introduced in 2017. It’s distinct from Bitcoin in the sense that Bitcoin is worth 8MB and Bitcoin cash is 1MB for faster transactions.

Litecoin

Its fundamentals are the same as Bitcoin and was created in 2011 by Charlie Lee, a former Google employee. He worked along the lines of having better technology and more concentrated miners.

Ethereum

This form of cryptocurrency doesn’t necessarily function as currency but it focuses on apps. It can be thought of as an AppStore as it focuses on the decentralization of applications. It focuses on the removal of middlemen or big companies and returns the apps to their original creators.

Ripple

It is not so much of a cryptocurrency that uses the blockchain methodology and is much more suitable for large-scale organizations. It claims to be able to handle 1,500 transactions per second (tps). Compare this with Bitcoin, which can handle 3-6 tps (not including scaling layers). Ethereum can handle 15 tps.

It is important to research extensively before choosing any given asset. Be sure to check its long-term market value, current analytics, and reviews.

How to buy cryptocurrency

There are generally three major ways to buy crypto assets. These are through crypto exchanges, brokerages, or payment services. We’d deep dive into how each step works.

Crypto Exchange

A digital currency exchange (DCE) is a business that allows customers to trade cryptocurrencies or digital currencies for other assets, such as conventional fiat money or other digital currencies. Exchanges may accept credit card payments, wire transfers, or other forms of payment in exchange for digital currencies. Popular crypto exchange platforms you might know includes Binance, Kraken, Cex.io, Gemini, and Bittrex.

Crypto Brokerages

A broker is an individual or firm that acts as an intermediary between an investor and a securities exchange. The direct dictionary is not far off from the crypto definition. Crypto Brokerages provide online financial services for users who want to buy or sell cryptocurrencies. For providing this service, a broker charges its users’ certain fees for using the platform. Brokerages are suitable for beginners and those buying small amounts of crypto. Robinhood, eToro, and Tradestation are great examples.

Payment Services

In simple terms, this means accepting or carrying out all financial transactions using crypto. Here bitcoin payment services enable merchants and businesses to receive payments in bitcoins from individuals for the goods and services being sold or delivered.

There are other alternative ways of buying crypto asides from the major ways above, these include;

Steps in buying crypto

  1. Choose a suitable cryptocurrency exchange/broker platform: Signing up for a cryptocurrency exchange will allow you to buy, sell, and hold cryptocurrency.
  1. Create an account with accurate details: Once you have selected a crypto exchange platform, it’s important to create an account with them and enter accurate data requested by the platform.
  1. Deposit Cash: In order to buy crypto, you’ll need to fund your account. Thankfully, there are different ways to do this. Plus, crypto brokers/exchanges make the whole process almost seamless.
  1. Place your order: Select your preferred coin and purchase it.
  1. Select a preferred storage method: This depends on your goals in the crypto space. This will help you consider a suitable storage method, take for instance a scenario where you want to store your assets for ten years, the best way to achieve this is to use a Cold Wallet, this involves moving your assets to a secure external device like a flash drive. 

The legal side of participating crypto activities

With the massive adoption and growth being experienced in the crypto industry, there has been an overwhelming buzz about regulations. In the last couple of years, the US has beamed its searchlight on the space. First, it was the crackdown on initial coin offerings by the Securities and Exchange Commission which was the rave of the moment between 2017 and 2018. After that, the Commodity Futures Trading Commission and other U.S. agencies called for the regulation of the crypto space.

Outside the U.S., the call for crypto regulation has also gained steam, with massive change being experienced in terms of evolving regulatory guidelines. For instance, the 5th Anti-Money Laundering Directive from the EU ensures that crypto buying and selling as well as other crypto-related activities comply with laid down regulations in some regions. 

Since the crypto space is pretty new, especially when you compare it with other industries, there are a lot of grey areas in terms of legal clarity. Part of such legal clarity includes asset classification. As of right now, Bitcoin and Etherieum are considered commodities. On the flip side, other asset categorization remains largely unclear. 

Who are the players that have impacted cryptocurrency?

There are quite a number of influential figures that have impacted the cryptocurrency industry. First it was the godfather himself, Nakamoto who kickstarted the crypto industry with the creation of bitcoin. Next was Vitalik Buterin, who is best known for building the Ethereum network. Thanks to the success enjoyed by Ethereum, other amazing tokens came into the limelight, especially via the ERC-20 token dominance. The impressive success enjoyed by Ethereum brought about the rise of many ICOs who built their projects on Ethereum, especially during the 2017 ICO boom. 

Another person who has contributed to the overwhelming success of the industry is Jed McCaleb. He helped spread bitcoin’s dominance in its early days. And he did that with the help of Mt. Gox, a platform dedicated to bitcoin trading. Unfortunately, the platform was short-lived, no thanks to the infamous hack of 2014, which saw investors lose over 850,000 bitcoins. 

Another inspiring figure that impacted the crypto industry is Changpeng Zhao, who through his platform Binance, increased crypto-asset availability. The platform today has metamorphosed into one of the largest crypto exchanges. 

Also, the brain behind FTX digital asset trading platform, Sam Bankman-Fried is another remarkable figure that has played a significant role in advancing the crypto industry. Besides these big names, there are still a number of renowned figures who have made their mark on the industry. A simple google search will present you with an exhaustive list of some of the most notable players in the crypto sector. 

The sky’s the limit

Cryptocurrency has come an impressively long way in the last decade. And we like that the industry is growing at a remarkable pace. Thanks to various assets and solutions, value can be stored, transferred, and spent in many exciting ways. More so, DeFi has brought about a new wave of borrowing and lending. 

Some mainstream companies today have been enticed by all of the remarkable perks of blockchain technology, especially in terms of its supply chain benefits. Thanks to all the remarkable benefits, especially when you consider the growth and rate of adoptions since bitcoin launched in 2008.

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